In Crypto trading, TrailingStop orders play a role in increasing profits and minimizing risks for investors. So what is a trailing stop order and what are its outstanding features? How should you place Trailing Stops orders at support resistance? The information below will answer traders’ questions. Let’s find out with Crypto Trading!
Find out What is a trailing stop?
Trailing Stops is a type of dynamic stop-loss order (also known as Dynamic Stop Loss). This order moves in the same direction as the order trend at a specified distance. Trailing Stops are updated when the market price changes. For example, if the asset price increases, the Trailing will automatically move in the direction of the asset. If the price trend changes, the position will be closed, at which point the Trailing Stops will become a static stop loss order.
What is a trailing stop?
Trailing Stops orders have the following outstanding features:
- Automatically place buy or sell orders when the market price meets the trigger condition to catch the bottom or take profit at the best price.
- The maximum validity period of Trailing Stops is 30 days.
- Trailing Stops orders will be triggered only once during the validity period.
- In case of an event of rights on the order code, before the transaction date without rights, the system will proceed to cancel the corresponding conditional orders that have not expired.
See more: Instructions for using margin effectively for trader
Types of TrailingStops orders in cryptocurrency trading
In Crypto trading, TrailingStops include the following order types:
- Trailing Buy: This is a buy order with the buy price automatically adjusted down to follow the downtrend in the market, in order to achieve the most optimal price. If the market price increases, the trigger price remains unchanged.
- Trailing Stops Sell: This is a sell order with the selling price automatically adjusted to follow the market’s upward trend, in order to achieve the most optimal selling price. In case the market price decreases, the trigger price will not change.
What is the difference between TrailingStop and Stop Loss?
To find out the difference between TrailingStop and Stop Loss, traders can base on the functions of these two types of orders:
- A trailing Stop is used to secure potential profits when the asset price changes in the investor’s favor. Meanwhile, Stop Loss is used to limit losses in case the market trend reverses unexpectedly.
- Stop Loss is a static stop loss order. Therefore, it is fixed at a pre-set level. A trailing Stop is a dynamic stop loss order, which can move in the same direction as the price or stay still when the price shows signs of reversing.
- The trailing Stop level in Crypto trading should not be less than the Stop Loss level.
Advantages and disadvantages of the What is a trailing stop command?
From the above information, traders have understood What is a trailing stop, how to distinguish between a Trailing Stop and Stop Loss. Any trading order has certain advantages and disadvantages. A trailing Stops order is no exception.
Advantages when investors place Trailing Stop orders
The advantages that Trailing Stops orders bring to investors are:
- Guarantee profits and limit risks in trading: Trailing Stops acts as a “safety belt” for the investor’s position. If the market moves in a direction favorable to the trader, this order will help you maximize the profits earned. If the market reverses suddenly, the trader can close the position and cut losses in time.
- Trailing Stops moves in the same direction as the market trend. Therefore, it is a great risk management tool during periods of high volatility in the cryptocurrency market. This order is extremely suitable for Scalping trading.
- Saves traders time: Trailing Stops has an automatic order processing feature. So you don’t need to manually adjust the stop loss.
- Trailing Stops is suitable for all different trading styles. For Swing traders and Intraday traders, this order allows investors to study the chart as well as look for new opportunities, thanks to its role of limiting the risk when opening a position.
What is a trailing stop?
Besides the above advantages, Trailing Stop also has some limitations such as:
- Permanent connection to the broker’s server: The trader must keep his computer on. At the same time, he must not turn off the trading platform or use a virtual server. This way, the Trailing Stop can operate smoothly.
- Not suitable for highly volatile markets: The reason is that there is a possibility that the position will be closed when the trader gets a small profit. In this case, the trader should increase the distance of the Trailing Stop Loss or deactivate the Trailing Stop Indicator.
See more: MEXC: Open a MEXC account, invest effectively
How to apply Trailing Stops effectively in Crypto trading
To know how to apply What is a trailing stop, you can refer to the information below.
Place a Trailing Stop order at the support resistance level
Setting a Trailing Stop order at a support resistance level is an effective trading method that you should not ignore. Based on the support and resistance lines, investors can easily determine the peaks and troughs in the same price trend. If you are not sure about the location of the peaks and troughs, traders can set a Trailing Stop order at the price level at the support resistance zone.
Enter orders at a risk-tolerant level
For this trading strategy, you need to determine the level of loss you can tolerate (R). Then, set Trailing levels of 1R, 2R, etc. If you notice that the trading market is volatile, you should consider setting a Trailing Stops order of 2R or more.
In case of small market fluctuations, traders can place a Trailing Stops order at 1R breakeven. This way, you will get maximum profit before the market enters a strong downtrend.
Investors can also apply the Crypto arbitrage method. This method helps minimize risks, suitable for newbies and experienced traders. Crypto Arbitrage allows investors to buy and sell the same asset on many different markets, earning additional profits by taking advantage of the price difference of that asset.
sYou can set Trailing Stops at 1R, 2R,… depending on market fluctuations.
Use Parabolic SAR signal to enter orders
The Parabolic SAR (PSAR) indicator is used by many investors to set Trailing stop orders. When the candlestick chart reaches the Parabolic SAR dot, traders need to set a Trailing Stops order at the nearest PSAR level. This is a signal to recognize an impending price reversal. Investors can base on this to take profit at the highest level.
sUse the Parabolic SAR indicator to place a Trailing Stops order
Conclude
The above article has helped readers answer the questions What is a trailing stop, the advantages, and disadvantages, and how to enter a trailing stop order? You can refer to and apply to optimize profits in trading. Don’t forget to visit Crypto Trading and update the latest trends in the cryptocurrency market!
FAQs
Below are some frequently asked questions about Trailing Stops orders.
What is the principle of canceling/editing Trailing Stops orders in trading?
Traders can cancel orders in all sessions in the Pending Activation status, but cannot edit Trailing Stops orders. Sub-orders created from conditional orders can be canceled/edited similar to regular orders.
At what sessions is Trailing Stop placed?
Trailing Stops orders are placed at the following sessions:
- Pre-ATO session.
- ATO session.
- Lunch break.
- Continuous session.
At what point is the Trailing Stops order triggered?
Trailing Stos order is only triggered when the market price condition is met:
- When the market price is higher than or equal to the trigger price, the Trailing Stops Buy order is triggered.
- When the market price is lower than or equal to the trigger price, the Trailing Stops Sell order is triggered.
